A Look at the T-Bills Subscription Through the Eye of #CytonnReport

During the week, there was a decline in T-bills subscription with overall subscription decreasing to 162.1 percent as compared to 167.4 percent recorded the previous week.

Key to note during last week’s trading was that that the subscription level for 364-day T-bill declined to 105.2 percent as compared to 215.0 percent the previous week.

The drop-in subscription levels for treasury bills can be attributed to the upcoming primary auction for treasury bonds as market participants are now focused on the primary treasury bonds market while the subscription rates on the 91-day and 182-day papers increased during the week coming in at 146.1 percent and 182.5 percent from 107.0 percent and 160.0 percent respectively the previous week.

The 364-day paper subscription decreased to 152.3 percent from 215.0 percent the previous week. The 182-day paper received the highest subscription and it remains the most preferred paper since it offers the highest return on risk-adjusted basis. Yields on the 91-day, 182-day and 364-day T-bills remained unchanged at 8.2percent, 10.3 percent and 10.8 percent respectively.

The 91-day T-bill is currently trading below its 5-year average of 10.4 percent. The decline on the 91-day paper is mainly attributed to the expected low interest rate environment following:

• The operationalization of the Banking Act Amendment 2015, which has led to more liquidity in the market,
• Reduced pressure from the government borrowing program as they are currently ahead of the pro-rated domestic borrowing target of 92.7 billion shillings, having borrowed 115.6 billion shillings, which is 124.7 percent of the pro-rated target.

The government is in the process of revising its domestic borrowing target upwards to 294.6 billion shillings, which if passed by Parliament will take the pro-rated borrowing target to 119.0 billion, in line with what it has borrowed so far.

This month of November, the government will be re-opening two bonds, a 15-year FXD 3/2007/15 and 20-year FXD 1/2008/20 with effective tenors of 6.0 years and 11.6 years respectively, to raise 30.0 billion shillings for budgetary support.

A 6-year bond is currently trading in the secondary market at a yield of 12.9 percent while a 11.6-year bond is currently trading in the secondary market at a yield of 13.5 percent.

According to Bloomberg, yields on the 5-year and 10-year Eurobonds remained relatively unchanged week on week to 4.7 percent and 7.4 percent from 4.7 percent and 7.5 percent respectively, the previous week.

Since the mid-January 2016 peak, yields on the Kenya Eurobonds have declined by 4.1 percent and 2.3 percent, respectively, for the 5-year and 10-year bond due to improving macroeconomic conditions in the country.

(Data and information in this article was gotten from Cytonn Investments Report of 20th November 2016)